3 Biggest Mistakes Traders Make When Increasing Their Risk Exposure
Best FX Brokers

3 Mistakes Traders Make When Increasing Their Risk Exposure

is it safeWhen you first started binary options trading, you probably were so excited that you did not really care you were investing very little money (assuming of course you took the responsible route!). But maybe after a while you started to get impatient with all those winning trades where you only raked in $20 or $30. Maybe you are at that point right now, and you are wondering how you can start investing more money. You have to be incredibly cautious whenever you decide to increase your risk—if you do it at all. In fact, I would urge that in most situations, you continue to invest modestly. Here are 3 common mistakes made by traders increasing their risk:

1. Dramatically increasing risk.

This is probably the most common mistake, and that is to get so impatient that you immediately make a huge leap in your risk exposure. Traders typically make this mistake because they are getting emotional.

Why is it bad to increase risk so quickly?

You can almost always avoid a huge jump in your risk exposure, simply by deciding here and now never to increase your risk more than incrementally. One time you cannot avoid it however is when you make the move from a demo account to a real account with real money for the first time. At that point, your risk has increased from 0 to around 3%. Risk exists for the first time. It may be small, but the change from nothing to something is obviously huge.

Many traders freak out when they trade live for the first time. There may be no getting around that, but one good practice is to start trading with about half of what you ultimately intended to start with. Trade 1.5% of your account until you get past that initial daunting leap into the world of risk. Then boost your account to 3%.

What about those situations where you experience a losing streak and that urge to dramatically “get it all back” with a single huge trade? Remind yourself at those times that if your losing streak is within the expected bounds based on your testing (they are occasionally unavoidable), you should probably continue trading as usual and not worry about it. It does not mean you are failing. If however your losing streak is outside those bounds or you do not understand what is going on, it is time to return to demo. You may feel like that is a step backwards, but in the grand scheme it will save you money and get you back on your feet and profiting much more quickly!

2. Scaling at the wrong times.

Do you often use double up or rollover? In binary options trading, these are both tools you can use to add to your investments. Doubling up adds money while rolling over scales your trade in terms of time and also requires you to increase your risk exposure in order to stay in the trade. Both tools can be advantageous and give you an opportunity to win more when you have a good situation going, but they should be used cautiously. Doubling up or rolling over may sound logical when you are winning a trade, and they do work well for a lot of traders. But sometimes they do the opposite of helping you out.

Why would it not make sense to ride out your gains as far as you can? If you are a trend trader, you probably are making your money by spotting new trends right as they are forming and getting in on them early. Some trends you can ride out for extra profits, but others will quickly reverse. You do not want to increase your risk as you draw nearer to a potential reversal! That is simply an inopportune time. How do you keep from falling into this trap? All you can really do is test and test and test some more. Eventually you will find what works for you! But do it without putting real money on the line!

3. Sizing up on only the “best” trades.

While this is another practice that at first may sound completely rational and intelligent, it is a deceptive one. When you are really confident in a trade, you should take it, and invest the same low percentage you normally would. And when you are not as confident in a trade, you should not invest less—you should simply not take it. This is not to say that you should be psyching yourself out of good trades. But you should be avoiding situations where you are not taking “A” trades altogether. When the only trades you take are those you are really confident in, there is no subjective reason to start investing huge amounts of money on some trades and not others. So this practice is eliminated.

Scaling up can be appropriate in certain circumstances, but you generally want to avoid the above mistakes. Here are the best practices for scaling up your trades:

Stay modest and moderate with your investments during good times and bad, and you will slowly build up your account. Someday you will look back and be amazed at how far you have come with your trading, and then you will know that all that patience was worth it!

Copyright © 2023 Bestfxbrokers.com | All Rights Reserved